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Missing the point on carbon pricing

Many wonder why environmentalists concern themselves with the level of the carbon price given the 2020 emissions reduction target will be met regardless. But just as the NAB Cup is merely a warm-up to the real AFL season, 2020 isn't the end goal.

The decision to drop the carbon price floor, while at the same time place greater restrictions on the use of carbon credits from developing countries, can be quite baffling to some of my economist and financial trader colleagues and friends. Many of them don’t understand why environmentalists would be bothered by the level of the carbon price, provided the 2020 emission reduction target is achieved.

“How could a carbon price be ‘tooooo low’,” they scoff. And, “Why on earth would you pay a higher price for reducing a tonne of CO2 from one source versus another?” Usually followed by, “Why do these greenies have such a problem with gas, isn’t it lower carbon than coal?”

These guys tend to be big fans of AFL football. So to help them get in the mind of a greenie, I ask them, “Would you prefer your footy team won the pre-season NAB cup or the regular season Grand Final?”

As most people who follow AFL football would know (apologies to our many readers in NSW and Queensland), no one gives a rat’s little toe about winning the NAB Cup. Winning the NAB cup can be a sign of a good season ahead, but it often isn’t. I happen to barrack for Carlton and on each occasion they won the pre-season cup, they didn’t even make the finals, let alone the Grand Final – and on one occasion came dead last. I don’t remember those pre-season premierships with much fondness.

In AFL football it is all about the end result, and the same is true in avoiding dangerous climate change. The emissions reduction target for 2020 isn’t the ultimate end goal so much as the warm-up for the main event.

The main event is to contain temperature rise to around two degrees. This will require our energy system to be transformed beyond recognition to almost zero carbon emissions by 2050.

To stretch the sporting analogies a bit further, addressing global warming is a bit like training for a marathon rather than a 1500 metre race. Before you can run a marathon you first need to be able to run a decent 1500 metres, but you don’t want to optimise your body for a 1500 metre race. This requires a different muscle and cardiovascular system than what you want for a marathon. For 1500m racing your body needs to be adapted to deliver greater brute speed, but this will come at the expense of endurance. A marathon runner will still share some similar characteristics to a good 1500m runner, but ultimately they make some sacrifices in brute speed over the first few kilometres in order maintain good speed throughout the full 42km.

Now both Australia and Europe could achieve their 2020 emission reduction targets in a light trot, but they are a long way from ready to reach 2050 emission reduction targets.

Thanks to the deep recession, Europe’s emissions over the last few years have been dramatically lower than the interim caps the European Commission has set. This means they can leave most of their industrial facilities and power stations unchanged and still easily meet their 2020 target thanks to a large bank of surplus allowances. In fact they could even cut back on some of their renewable energy support policies to save money and instead use a bit more gas.

Australia could also make no change to its industrial infrastructure, or in fact allow it to become even more polluting, and still barely raise a sweat in meeting its 2020 target. This could be done by buying a large amount of $5 carbon credits from developing countries.

From the atmosphere’s perspective it won’t notice the difference in 2020. But both Australia and Europe’s industrial muscles will not have been exercised by the carbon price so they’re prepared for the hard yards that really start to kick-in after 2020. What’s more, because Europe and Australia have neglected doing the training required to become proficient marathon runners, they might be tempted to change their goal from running the marathon to instead maybe running a half marathon.

Thankfully, in addition to the carbon price, Europe has a range of other measures it has implemented to build up some clean energy muscle. These include a 20 per cent renewable energy target and strong motor vehicle fuel economy standards. But these don’t cover off on a wide array of other opportunities for reducing emissions that a carbon price will address.

Free kicks are great if you can get them, but you can’t build a premiership-winning season on them.

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